The U.S. Risk Premium Campbell R. Harvey, Ph.D., Professor,

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Presentation transcript:

The U.S. Risk Premium Campbell R. Harvey, Ph.D., Professor, Duke University http://www.duke.edu/~charvey

U.S. Risk Premium Survey Background Graham/Harvey: Survey CFOs every quarter Q2 2000 through Q4 2003 (15 quarters) Current survey attracts about 400 respondents Why CFOs? We know from previous surveys and interviews that the CFOs use the risk premium for their capital budgeting Hence, they have thought hard about risk premium Should not be biased the way that analyst forecasts might be

U.S. Risk Premium One-Year Premium One-year risk premium quite variable. Currently, about 7%

U.S. Risk Premium Ten-Year Premium Ten-year risk premium is stable. Currently, about 3.7%

U.S. Risk Premium Momentum in Expectations for 1-year Premium

U.S. Risk Premium Extreme Returns Cause Disagreement

U.S. Risk Premium Positive Relation Between Disagreement and Expected 10-year Returns

U.S. Risk Premium Example Confidence Intervals: September 16, 2002